Marriage & Property Ownership: Who Owns What?

Married couples usually own most, if not all, of their valuable property together. If you want to leave everything to your spouse, as many people do, you don't need to worry about what belongs to you and what belongs to your spouse. If you'd rather divide your property among several beneficiaries, you'll need to know just what's yours to leave. 

Married couples usually own most, if not all, of their valuable property together. If you want to leave everything to your spouse, as many people do, you don't need to worry about what belongs to you and what belongs to your spouse. If you'd rather divide your property among several beneficiaries, you'll need to know just what's yours to leave.

Common Law States

Most states, except those listed as community property states, below, use the "common law" system of property ownership. In these states, it's usually easy to tell which spouse owns what. If only your name is on the deed, registration document, or other title paper, it's yours. You are free to leave your property to whomever you choose, subject to your spouse's right to claim a certain share after your death. (For more information, see Inheritance Rights.)

If you and your spouse both have your name on the title, you each own a half-interest in the property. Your freedom to give away or leave that half-interest depends on how you and your spouse share ownership. If you own the property in "joint tenancy with right of survivorship" or "tenancy by the entirety," the property automatically belongs to the surviving spouse when one spouse dies -- no matter what the deceased spouse's will says. But if you instead own the property in "tenancy in common" (less likely), then you can leave your half-interest to someone other than your spouse if you wish.

If an item doesn't have a title document, generally you own it if you paid for it or received it as a gift.

Community Property States

If you live in a community property state, the rules are more complicated. Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. (In Alaska, spouses can sign an agreement making specific assets community property.)

Generally, in community property states, money earned by either spouse during marriage and all property bought with those earnings are considered community property that is owned equally by husband and wife. Likewise, debts incurred during marriage are generally debts of the couple. At the death of one spouse, his half of the community property goes to the surviving spouse unless he left a will that directs otherwise.

Married people can still own separate property. For example, property inherited by just one spouse belongs to that spouse alone. A spouse can leave separate property to anyone; it doesn't have to go to the surviving spouse.

Community Property	Separate Property
Money either spouse earns during marriage	Property owned by one spouse before marriage
Things bought with money either spouse earns during marriage	Property given to just one spouse
Separate property that has become so mixed with community property that it can't be identified	Property inherited by just one spouse

These rules apply no matter whose name is on the title document to a particular piece of property. For example, a married woman in a community property state may own a car in only her name -- but legally, her husband may own a half-interest. Here are some other examples:

Property	Classification	Why
A computer your spouse inherited during marriage	Your spouse's separate property	Property inherited by one spouse alone is separate property
A car you owned before marriage	Your separate property	Property owned by one spouse before marriage is separate property
A boat, owned and registered in your name, which you bought during your marriage with your income	Community property	It was bought with community property income (income earned during the marriage)
A family home, which the deed states that you and your wife own as "husband and wife" and which was bought with your earnings	Community property	It was bought with community property income (income earned during the marriage) and is owned as "husband and wife"
A camera you received as a gift	Your separate property	Gifts made to one spouse are that spouse's separate property
A checking account owned by you and your spouse, into which you put a $5,000 inheritance 20 years ago	Community property	The $5,000 (which was your separate property) has become so mixed with community property funds that it has become community property

Changing the rules with a written agreement. Married couples don't have to accept the rules about what is community property and what isn't. They can sign a written agreement that makes some or all community property the separate property of one spouse, or vice versa.

Some community property can avoid probate. Several community property states offer an advantageous way of holding title to community property that avoids probate at the death of the first spouse. It's called "community property with right of survivorship." If a couple holds title to property -- a house, for example -- in this way, when one spouse dies the property will automatically belong to the survivor, without any probate court proceedings.

Leaving an Inheritance for Children

Providing for your children in case you die prematurely takes more than picking someone to raise them. You should also consider what will happen to any money or property your children inherit from you. Who will manage it for them until they became adults? You can leave these instructions in your will or living trust. For more information, see Nolo's article Guardianship for Your Children.

Many parents don't leave money directly to their children. Instead, they leave everything to each other, with the understanding that the survivor will care for the children. They name their children as alternate beneficiaries. Many single parents, however, leave property directly to their children.

Either way, you should arrange for someone to manage whatever property they may inherit, in case they receive it while they're still too young to manage it themselves. You can take care of this in your will or living trust.

What Happens Without Property Management

If you don't arrange for property management for young children (under 18), the probate court will do it for you by appointing someone to serve as the children's "property guardian." The court often appoints the other parent -- but not in every case.

This arrangement comes with some headaches. Usually, a court-appointed guardian must make frequent reports to the court and has limited authority to decide how the property should be managed. There's one exception: If relatively small amounts of property are involved, many states allow an executor to appoint a custodian under the Uniform Transfers to Minors Act (discussed below) to manage the property.

If your children are 18 or older when they inherit from you, they'll have complete control of the property unless you specify otherwise in your will or living trust.

Options for Property Management

Fortunately, it's easy to avoid the uncertainties and hassles of court-appointed guardianship, or the worry that a 20-something beneficiary may not manage an inheritance wisely. You can choose someone, now, to manage any property that your minor or young adult children may someday inherit from you. There are lots of ways to structure this arrangement. Here are four of the simplest and most useful.

1. Name a Property Guardian in Your Will

If you wish, you can simply use your will to name a property guardian for your child. Then, if at your death your child needs the guardian, the court will appoint the person you chose as property guardian. The property guardian will manage whatever property the child inherits, from you or others, if there's no mechanism (a trust, for example) to handle it.

2. Name a Custodian Under the Uniform Transfers to Minors Act

The Uniform Transfers to Minors Act (UTMA) is a law that has been adopted in substantially the same form in almost every state. (The holdouts are South Carolina and Vermont.) Under the UTMA, you may choose someone to manage property you are leaving to a child. This person is called a custodian. If you die when the child is still under the age set by your state's law -- 21, in most states -- the custodian will step in to manage the property. (Older offspring get their property outright.)

To set up a custodianship, all you need to do is name a custodian and the property you're leaving to a young person. You can do this in your will or living trust, or when you name a beneficiary for an insurance policy, if you're leaving life insurance proceeds to your kids. For example, your will might state, "I leave $10,000 to Michael Stein, as custodian for Ashley Farben under the Illinois Uniform Transfers to Minors Act." That would be enough to create the custodianship (if it's ever needed).

In most states, a UTMA custodianship ends when the beneficiary is 21. But a few states end them at 18, and a handful allow you to extend the age to 25. If you don't want the beneficiary to get the property so young, you may want to use a trust (discussed below) instead.

USING LIFE INSURANCE TO PROVIDE FOR CHILDREN

You can use an UTMA custodianship or child's trust to name a property manager for life insurance proceeds you leave to your young children. But before you buy life insurance to provide for your children, you should consider the following: Do you really need it and, if you do, what type of policy should you buy? See Nolo's article Using Life Insurance to Provide for Children.

3. Set Up a Trust for Each Child

Another approach is to establish a trust for each child. With this arrangement, you use your will or living trust to name a trustee (usually a trusted relative or friend), who will handle money or property the child inherits until the child reaches the age you specify. If the beneficiary is already over this age at your death, the trust never comes into being; instead, the property goes straight to the beneficiary.

The trustee must act in the beneficiary's best interests and follow your written instructions. Generally, the trustee can spend trust money for the young person's health, education, and living expenses. When the child reaches the age you specified, the trustee ends the trust and gives whatever is left of the trust property to the beneficiary.

Serving as a trustee is more work than serving as a custodian under the UTMA. For one thing, a trustee must file annual income tax returns for the trust. And because the powers of a trustee are limited to what's allowed in the will or trust document, the trustee may have to show the will (or at least the part of it that outlines the trustee's authority) to banks and others with whom he or she deals. The powers of a UTMA custodian, however, are set out by state statute. Most banks and other institutions are familiar with them and know just what authority custodians have.

4. Set Up a 'Pot Trust' for Your Children

If you have young children, you may want to set up just one trust for all of them. This arrangement is often called a pot or family trust. In your will or living trust, you authorize the trust and appoint a trustee, who will have the power to dole out trust money to each of the children. The trustee doesn't have to spend the same amount on each child; instead, the trustee decides what each child needs. When the youngest child reaches a certain age, usually 18, the trust ends.

A pot trust gives great flexibility (and responsibility) to the trustee. Its major drawback is that the older children can't receive their shares of the trust property until the youngest child turns 18; they may not get control over their inheritance until they are well into adulthood.

EXAMPLE

Nick and Nora have three children, ages 4, 5, and 10. In their wills, Nick and Nora each leave everything to each other, and name the children as alternates. If both parents die and the children inherit everything, Nick and Nora's wills provide that one pot trust will be set up for all the property. The trustee, Nora's sister Chloë, will be responsible for managing the assets in the trust and spending trust money for the children in whatever amounts she decides are necessary.

Inheritance Rights

Some very close relatives -- a surviving spouse and sometimes children or grandchildren -- have the right to claim an inheritance, and in some cases this can override what it says in your will. Here's how it works:

A Spouse's Right to Inherit

In most circumstances, a surviving spouse cannot be completely cut out of a will.

Community property states

The community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington,Wisconsin, and Alaska -- if spouses sign an agreement creating community property) have their own rules about what spouses own and can claim. Basically, each spouse automatically owns half of what either one earned during the marriage, unless they have a written agreement to the contrary. Each spouse can do whatever he or she likes with his or her own half-share of the community property and with his or her separate property. 

Other states

In all other states, there is no rule that property acquired during marriage is owned by both spouses. But to protect spouses from being disinherited, most of these states give a surviving spouse the right to claim one-third to one-half of the deceased spouse's estate, no matter what the will provides. In some states, the amount the surviving spouse can claim depends on how long the couple was married.

These provisions kick in only if the survivor goes to court and claims the share allowed by law. If a surviving spouse doesn't object to receiving less, the will is honored as written.

Example:

Johanna's will leaves $80,000 to her fourth husband, Fred, and divides the rest of her property, totaling almost $500,000, among her three sons from previous marriages. If Fred is happy with his inheritance, everything will go according to Johanna's plan. But if Fred wants more, he can claim a share of Johanna's estate -- and get substantially more than $80,000. If he does, Johanna's three sons will take what's left.

If you don't plan to leave at least half of your property to your spouse in your will, and have not provided for him or her generously outside your will, you should consult a lawyer unless your spouse willingly consents, in writing, to your plan.

Ex-Spouses' Rights

In most states, getting divorced automatically revokes gifts made to a former spouse in your will. But to be on the safe side, if you get divorced, make a new will that revokes the old one. Then you can simply leave your former spouse out of your new will.

Children's Right to Inherit

Generally, children have no right to inherit anything from their parents. In certain limited circumstances, however, children may be entitled to claim a share of a deceased parent's property. For example, the Florida constitution prohibits the head of a family from leaving his or her residence to anyone other than a spouse or minor child if either is alive.

Most states do have laws to protect against accidental disinheritance. These laws usually kick in if a child is born after the parent made a will that leaves property to siblings, and the parent never revises the will to include that child. The law presumes that the parent didn't intend to freeze out the newest child, but just didn't get around to revising the will. In that situation, the overlooked child may have a right to a significant part of the parent's assets.

In some states, these laws apply not only to children, but also to any grandchildren of a child who has died.

If you decide to disinherit a child, or the child of a deceased child, your will should clearly state your intention. And if you have a new child after you've made your will, remember to make a new will.

What A Will Can't Do

Wills are wonderful, simple, inexpensive ways to address many people's estate planning needs, but they can't do it all. Here are some things you shouldn't expect to accomplish in your will.

Leave Certain Kinds of Property

You can't use your will to leave:

• Property you hold in joint tenancy with someone else (or in "tenancy by the entirety" or "community property with right of survivorship " with your spouse). At your death, your share will automatically belong to the surviving co-owner. A will provision leaving your share would have no effect unless all co-owners died simultaneously.
• Property you've transferred to a living trust.
• Proceeds of a life insurance policy for which you've named a beneficiary.
• Money in a pension plan, individual retirement account (IRA), 401(k) plan, or other retirement plan for which you've named a beneficiary on forms provided by the account administrator.
• Stocks or bonds held in beneficiary (transfer-on-death or TOD) form. If you want to change the beneficiary, contact the brokerage company.
• Money in a payable-on-death bank account. If you want to name a different beneficiary, just fill out a simple form at the bank.

Leave Funeral Instructions

Wills are typically not read -- or even found -- until days or weeks after a death. That's too late to be of help to the people who must make immediate decisions about the disposition of a body and funeral or memorial services. Instead, make a separate document spelling out your wishes and tell your executor where to find it when the time comes. (See Final Arrangements FAQ.)

Reduce Estate Taxes

If you expect your estate to owe federal estate taxes, you may want to take steps now to reduce the tax liability. A will won't help you avoid taxes. Many kinds of trusts can reduce or postpone the tax bill. 

Avoid Probate

Property left through a will usually must spend several months or a year tied up in probate court before it can be distributed to the people who inherit it. 

Put Certain Conditions on Gifts

There are also a few legal limitations on what you can do in a will. For example, you cannot leave a gift that is contingent on the marriage, divorce, or change of religion of a recipient. You can, however, try to influence lesser matters. For example, you could leave money "to Jeremy, if and when he goes to college." Making such conditional gifts, however, usually opens a can of worms -- who will enforce the will's conditions, and for how long?

Leave Money for an Illegal Purpose

This one doesn't come up often, but you can't earmark money for something illegal, such as encouraging minors to smoke.

Arrange to Care for a Beneficiary With Special Needs

If you want to provide long-term care for someone, a will isn't the place. Far better to set up a trust that's tailored to the beneficiary's needs. A special needs trust can provide extra income for a loved one with disabilities, without jeopardizing government benefits.

Nolo's book Special Needs Trusts, by Stephen Elias, explains how special needs trusts work and gives you the tools to make one yourself. Of course, if you have a complicated situation or if you would rather have an expert's advice about your specific situation, you may also want to see a lawyer who's an expert in this field.

Leave Money to Pets

Pets can't own property, so don't try to leave property directly to your pets in your will. Instead, leave your pet to someone who has agreed to provide a good home -- and leave that person some money to help out with pet-related expenses. Some states allow you to set up trusts for animals, but that's probably not necessary if you have confidence in the person you've named to care for your pets after your death.

Creating A Simple Will

You've heard that if you do nothing else to take care of your legal affairs, you should write a will, and it's pretty good advice. If you don't make a will before your death, state law will determine who gets your property and a judge may decide who will raise your children (and either or both may not be whom you would have chosen). Writing such an important document can be daunting, but it doesn't need to be.

If all you need is a basic will, you can confidently use a good do-it-yourself book or software to make a legally binding will that:

• leaves your property to the people and organizations you choose
• names a guardian to care for your minor children if you can't
• names someone to manage property you leave to minor children (yours or someone else's), and
• names your executor, the person with authority to make sure that the terms of your will are carried out.

When a Basic Will Is Enough

By and large, if you are under age 50 and don't expect to leave assets valuable enough to be subject to estate taxes, you can probably get by with only a basic will. But as you grow older and acquire more property, you may want to engage in more sophisticated planning -- we go into these details below.

Take a common situation where a husband and wife want to leave their property to each other or, if they die together, to their children in equal shares. They also want to name a personal guardian for their children. They can safely make simple wills themselves without hiring a costly expert. (See Nolo's article Making a Will: Are Lawyers Optional?)

Here are a few other examples of real-life situations where a basic will is all that's needed.

• Heather and Jerome, in their late 30s, own a home, two cars, and some savings. Their net worth totals $400,000. They have one child, Mark, age 11. Each prepares a will leaving all his or her property to the other. If they die at the same time, Mark is to receive all their property. Heather and Jerome agree that Heather's brother will care for Mark and manage the property until Mark turns 18.
• Sam, a widower with three grown children, owns property with a net worth of $510,000. He creates a will leaving all his property equally to the children. He specifies that if any child dies before him, that child's share is to be divided equally between the surviving children.
• Barbara is a single mother with two teenage children. Though she's not on great terms with her ex-husband, he's a decent father and pays child support more or less on time. Barbara's will leaves all her property equally to her children. Because she does not want her ex-husband managing money left to her children if she dies, she uses her will to appoint her sister Debbie to manage each child's property until that child turns 18.

Will a Basic Will Avoid Probate?

No. If you leave anything more than a small amount of property through a will, probate court proceedings will probably be necessary after your death. Although it varies from state to state, probate can take six months or a year and eat up three to five percent of your estate in lawyers' and court fees. And your beneficiaries will probably get little or nothing until probate is complete.

But if you need only a basic will, you have little reason to concern yourself now with probate. If you're relatively young and healthy and you don't have piles of money, your real concern is to make legal arrangements for the statistically unlikely event that you will die suddenly and unexpectedly. You've almost certainly got plenty of time to plan for probate avoidance later.

If you want to plan for probate avoidance now, see Nolo's article How Living Trusts Avoid Probate.

Is a Basic Will for You?

If the following statements describe you, a basic will is probably enough:

• You're under age 50.
• You're in pretty good health.
• You don't expect to owe estate tax at your death.

On the other hand, if one of the following applies to your situation, then you probably need something more than a basic will:

• You expect to owe estate tax you die or when your spouse does. (See Nolo's Estate Tax area.)
• You want to control what happens to property after your death -- for example, you want to leave some property in trust for your child and have it go to your grandchildren when your child dies.
• You have a child with a disability or other special need that you wish to address in your estate plan. (See Special Needs Trusts.)
• You have children from a prior marriage and you fear conflict between them and your current spouse.
• You think someone might contest your will, claiming that you were not mentally competent when writing it, or that the will was procured by fraud or duress.